From labs to market: Commercialising University Research Through Option Agreements
Introduction : Universities and colleges are one of the best institutions producing immense research but are often overlooked. This is because companies hesitate to invest in their research during early invention stage and universities hesitate to give exclusive rights over the research to the company. In such scenarios, option agreements offer a middle path to satisfy both stakeholders.
An option agreement is a contract that gives a party the right, but not the obligation, to buy or sell rights or assets at a price within a specified time frame. In the context of university research, it gives the company, the right to evaluate research results or acquire rights to a package of intellectual property, for the specific period of time. It may come in the form of exclusive option, wherein the university will not be allowed to license the research to anyone else during that period. Therefore, it allows the company to evaluate the research before granting the full license and at the same time, the university receives funds to continue the research and developing it further.
Although the grant of options is favourable to further encourage commercialising university research, the grant raises critical issues relating to IP Commercialisation strategies, option fees, student contributions and exclusive rights. Therefore, negotiations between the stakeholders for options agreement plays a crucial role in university contracts.
Legal Provisions
A. The Indian Contract Act, 1872
An option agreement is enforceable like any other contract if the consideration and object are lawful.
Section 27 of the Indian Contract Act provides that agreements in restraint of trade are void. Thus, the exclusivity aspect of an option agreement needs to be drafted considering this section. Section 29 treats agreements whose meaning is uncertain as void. A bare promise to negotiate a licence can be void if key terms are not clearly expressed.
B. The Patents Act, 1970
Under section 68 of the Patents Act, an assignment or licence is valid only if it is in writing and embodies all the terms governing the parties' rights and obligations.
C. Copyright Act, 1957
Under section 19 of the Copyright Act requires assignments to be in writing and supplies default terms if the document is silent. This may be appliable if the university research is a technology or software or another copyright work.
Legal Analysis
A. Statutory Provisions
India does not have any dedicated statute concerning commercialisation of University Research. The Protection and Utilisation of Public Funded Intellectual Property Bill, 2008, a proposed Bayh-Dole-style law, was never enacted. It attempted to create a unified framework by giving institutions the statutory right to own publicly funded IP, laying down licensing obligations. But it remained inadequate on multiple grounds and hence was abandoned.
The National IPR Policy 2016 offers aspirational guidance, encouraging commercialisation, royalty-sharing and linking IP creation to academic incentives without creating enforcing obligations. However, it leaves it on the institutions to create and design contracts. Therefore, Option agreements between Companies and Universities are governed under the general provisions of Contract law, Patent and Copyright laws.
B. Types of Option Agreements
As mentioned above, Indian law supplies no provisions relating to licensing university research, so each clause must be negotiated and drafted individually. Parties can use options in a few different ways, depending on what they're trying to achieve:
1. Stand-alone option agreement: The whole deal is about the option itself. For example, a company pays for the right to decide later whether to take a licence to a particular patent application.
2. Evaluation agreement: Usually takes place in software licensing agreements. One party hand over the software to the other to test for a set period. The testing window works as the option. If the software suits them, they can take a licence at the end.
3. Research collaboration or sponsorship agreement: Company funds university research and may be given the option to acquire rights in whatever intellectual property the research produces.
4. Licence agreement with an improvements option: Alongside the licence to existing patents and know-how, the licensee may get an option over future improvements to the technology. This works best when “improvements” is clearly defined in the agreement.
C. Disclosure and Exclusivity clauses
Disclosure clauses in an option agreement plays an important role. The company needs access to unpublished know-how, while the university must protect its novelty and intellectual property. Where there are multiple aspects of confidential information, the safest approach for the university is to provide only some information to the recipient and withhold the most sensitive and valuable parts. A confidential agreement should precede any disclosure.
Exclusivity arises because during the option period, the university cannot license or reveal the same technology to anyone else. Such restraints to trade are accepted by the Indian courts as reasonable during the life of a contract.
Beyond this, there needs to be a workable structure to a definitive licensing agreement; that way, the companies and research institutions will be encouraged to accept disclosure and exclusivity restrictions.
C. Publication, Students contribution and Sponsored Research
On publication, researchers must stay free to share their work, but a paper or conference talk can destroy novelty and cost the invention its patent. So, the agreement should let the institution publish after a short, fixed review period during which the company can file first. On students, a research scholar who helped conceive the invention is an inventor in law, whoever ends up owning it, and because ownership turns on institutional policy rather than student, the institution should collect signed assignments from every contributor before it grants anyone exclusive rights. If the company funds further work during the option, the agreement should say plainly who owns the new results and improvements and whether they fall within the optioned technology.
Relevant Case Laws
Niranjan Shankar Golikari vs The Century Spinning And Mfg. Co. Ltd 1967 AIR 1098: Leading authority on validity of exclusivity clauses. The Supreme Court held that an exclusivity covenant that bound an employee is valid as section 27 of the Indian Contract Act does not apply inside the contract.
Dr. Tarkeshwar Chandrakant Patil v. Indian Institute of Technology, Bombay & Ors. Commercial Miscellaneous Petition (L) NO. 12000 OF 2026: The Court held that while IIT Bombay’s policy initially gave it ownership of research-related IP, the Institute later validly assigned the rights to the student-inventor. The Patent Controller could not ignore this assignment and the supporting evidence. Finding that the rejection order showed a failure to properly consider the record, the Court set it aside and directed the application to be processed in student’s name.
Practical Implications
Considering the above, it is essential for both the companies and university institutions to draft a well-written option agreement so that there can be a seamless move from research to market without any surprises. The following points must be considered in an options agreement:
Define IP covered by the agreement: This may include an existing patent or technology, but if future research is involved, the agreement should clearly limit which developments fall within its scope. The parties must also decide whether the company will have an option to obtain a licence or an assignment of ownership, keeping in mind the university’s interest in retaining control over its research.
Specify the option period, fee and exercise procedure: This may include how and when the company must communicate its decision. It should also clarify what happens if the option is not exercised or the parties fail to agree on the final commercial terms.
Other considerations: Confidentiality obligations, ownership of subsequent improvements, and any restrictions arising from third-party funding or existing agreements. Where exclusivity is granted, the university must also consider the opportunity cost of being unable to license the technology elsewhere during the option period.
Conclusion
The successful commercialisation of university research ultimately depends on not only the quality of innovation but also on the clarity of agreements governing its use. A well-drafted option agreement should balance the company’s need to evaluate and commercialise promising research with the university’s responsibility to protect its intellectual property and preserve opportunities for further research and innovation. Clear terms of scope of its IP, research interests, disclosure arrangements, exclusivity clauses and option fees, period are essential to prevent future disputes or uncertainty.
These agreements should recognise that universities are institutions capable of commercially valuable inventions with the intention of advancing knowledge and committing to development. Striking a balance between the commercial interests and academic objectives is therefore essential.
Author: Vaishnavi Kulkarni in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
Endnotes
Anderson, Keevey & Kothari, 'Options', in Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (MIHR & PIPRA, 2007) ch. 11.7, available at https://ipmall.law.unh.edu/sites/default/files/hosted_resources/IP_handbook/ch11/ipHandbook-Ch%2011%2007%20Anderson-Keevey-Kothari%20Options.pdf.
Protection and Utilisation of Public Funded Intellectual Property Bill, 2008 (India)
Indian Contract Act, 1872, s. 29 (India).
Indian Contract Act, 1872, s. 27 (India).
Patents Act, 1970, s. 68 (India).
Patents Act, 1970, s. 69 (India).
Copyright Act, 1957, s. 19(1) (India).
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